Weakness in ProShares Equities for Rising Rates ETF's People and Process Pillar ratings limits this strategy to a Morningstar Medalist Rating of Neutral. The portfolio maintains a cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The team managing the passive strategy earns a Below Average People Pillar. The strategy earns a Below Average Process Pillar rating.  High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. The strategy's parent organization is industry standard, albeit with some strong attributes like overall attractive fees and a favorable lineup success ratio. This earns the firm an Average Parent Pillar rating.

Analyst Rating

EOG Resources

Diamondback Energy

ConocoPhillips

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Marathon Petroleum

Halliburton

Marathon Oil

Valero Energy

Phillips 66

Schlumberger

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. ProShares Equities for Rising Rates ETF earns a Below Average Process Pillar rating. The process is strengthened by tracking an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. However, the rating is weakened by the fund's mediocre long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the process has struggled over that period. The parent firm's five-year risk-adjusted success ratio of 38% also detracts from the process. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup.

The investment strategy as stated in the fund's prospectus is:  The investment seeks investment results, before fees and expenses, that track the performance of the Nasdaq U.S. Large Cap Equities for Rising Rates Index (the "index").  The fund invests in financial instruments that ProShare Advisors believes, in combination, should track the performance of the index. Under normal circumstances, and the fund will invest at least 80% of its total assets in component securities. The index consists of 50 companies whose stock prices historically have tended to outperform the Universe during periods of rising interest rates. 

 The portfolio is overweight in energy and basic materials relative to the category average by 21.3 and 15.6 percentage points, respectively. The sectors with low exposure compared to category peers are healthcare and technology, underweight the average by 14.8 and 11.3 percentage points of assets, respectively. The strategy owns 51 securities and is relatively concentrated. In particular, 29.6% of the strategy's assets are housed within the top 10 holdings, as opposed to the typical peer's 27.4%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 92% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Below Average

Process

ProShares’s team receives a Below Average People Pillar rating. The team benefits from the fund's structure. It tracks an index, which is helpful because historical data, like Morningstar's Active/Passive Barometer, reveals that index funds have generally outperformed their active counterparts, especially over longer time periods. However, the rating is limited by the parent firm's five-year success ratio of 32%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median return for the period. The parent's subpar success ratio suggests that the firm could do better across its fund lineup. The parent firm's five-year retention rate of 58% also holds the team back.

People

In a competitive industry, ProShares doesn't differentiate itself enough, leading to an Average Parent Pillar rating. One notable advantage of ProShares is its below-average fees. On average, the firm's open-end and exchange-traded fund fees fall in the second-cheapest quintile of category peers. The firm’s lineup has demonstrated industry-average durability. Its 10-year success ratio is 57%, meaning that 57% of strategies have both survived and beaten their respective category median. A firm's success ratio indicates relative performance and provides insight into a firm’s discipline around investment strategy and product development. ProShares has faced above-average manager turnover in the past five years. This is a concern, as long-term stability tends to support positive results.

Average

Parent

ProShares Equities for Rising Rates ETF

EQRR tracks an index of 50 US-listed large-cap stocks that are anticipated to perform favorably during periods of rising interest rates.

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EQRR is a specialty ETF designed for rising rate environments. Fees are modest at 0.35%, and it's come through for investors lately. EQRR is outpacing SPY by 13.52% YTD. However, it's excessively risky. It owns 50 stocks primarily across five sectors, and if interest rate forecasts turn out incorrect, shareholders can experience huge losses.

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The Labor Department announced that in November, only 210,000 jobs were added on an expectation of 573,000, reports the Wall Street Journal. It further exacerbates the gap between the demand for workers and the number of people that are finding jobs, driving inflationary pressures higher.

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While the Federal Reserve meeting last week focused primarily on commencing tapering of the stimulus help the central bank has been giving by way of bond purchases, the Fed was clear that it believes inflation to be transitory and that interest rate rises would be on the horizon as supply and demand imbalances correct. On [...] The post Investing in Preparation of Rising Interest Rates With EQRR appeared first on ETF Trends.

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Just a few months ago, allocating to equity strategies designed to thrive in rising rate environments wouldn't have been a priority for many investors. However, markets shift rapidly and the ProShares Equities for Rising Rates ETF (EQRR) is back in style.

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